Friday, December 11, 2009

In many new businesses, the owner is putting so many of the companies expenses on credit cards that answering this question is more difficult than just looking at the business check book balance. They never spend the time to create a profit and loss statement to figure out if they are REALLY making money! Whether you are or not, the profit and loss statement should give ideas of where to focus your time. That may mean watching expenses or increasing sales of more profitable items.

2) How much does a new sale cost you?

I am always surprised at how many business owners can not answer this question. To get the answer, you need to add up all of your expenses associated with a sale. Many people want to just include the price of the lead, but don’t forget to include items such as: costs of leads that didn’t close, other advertising you do, salaries/commissions for sales staff, cost of item sold (product or service). It is best to know these costs per product/service line. This helps you know if the selling expenses associated with a particular product/service is eating up all your profit margins for that product/service.

3) What is the future value, in terms of revenue, of each of your customers?

This means how much business can you plan on getting from each of your new customers in the future? If you have consumable products, how often can you expect each customer to reorder? If you provide a service, when can you expect to do more work for each customer? Knowing the amount and frequency of repeat business allows you to better plan your company’s growth with each new customer won!

Having the answers to each of these questions will help keep you on top of the financial well being of your company.